Culver cuts spending across the board by 1.5 percent

Ouch:

Gov. Chet Culver announced an across-the-board budget cut today and said education and Medicaid won’t escape unscathed.

Culver announced a 1.5 percent across-the board reduction in an attempt to deal with the state’s declining revenues.

The governor said staff reductions and employee furloughs are likely, which will be determined by each department. “It’s going to be painful,” he said.

The cuts announced today amount to $91.4 million and will have an effect on services, Culver acknowledged. In addition, Culver ordered a transfer of $10 million of unused money into the general budget. Most of that transfer money will come from an underground storage tank account, which is used to investigate and clean up any past petroleum contamination from underground storage tanks.

A week ago, Culver announced $40 million in cuts, largely through a hiring freeze and limiting out-of-state travel. In addition, Culver said he will ask the Legislature to withdraw plans for a $37 million new office building.

Combined with cuts announced Dec. 9, the total is $178.4 million in reduced expenses in the current budget year that ends June 30.

Clearly spending cuts in the current year are unavoidable because of the decline in projected revenues.

When state legislators draft next year’s budget, though, I hope they will not rely only on spending cuts to make up for projected lower revenues. David Sirota explains why:

Almost every single economist agrees, the last thing we want to do in a recession is slash government spending. We want, in fact, to increase that spending so that it is a counter-cyclical force to a deteriorating economy. So the question, then, is how to most safely generate the revenue to maintain or increase that spending. By  “most safely” I mean how to raise the revenue in a way that will minimize any negative economic impact. And the answer comes from Joseph Stiglitz:

 

“[T]ax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run. Reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short run than tax increases focused on higher-income families.”

So, first and foremost, you don’t want dramatic spending cuts (beyond the usual rooting out of waste/fraud) and you don’t want to raise taxes on middle- and lower-income citizens who both need the money for necessities, and are the demographics that will most quickly spend money in a stimulative way. That leaves taxes on the super-rich, and Stiglitz – unlike anti-tax ideologues – has actual data to make his case.

For more information, see Budget Cuts or Tax Increases at the State Level:

Which is Preferable During an Economic Downturn?

Will Democrats dare to raise taxes, knowing that Republican candidates and interest groups will hammer them for it in 2010?

I have no idea, but if drastic spending cuts send the economy further into recession, 2010 isn’t going to be a picnic for Democrats anyway. I doubt they’ll rally the troops with “At least we didn’t raise your taxes” as a campaign message.

When analyzing the new Iowa House Democratic committee assignments, Chase Martyn noticed,

Almost all vulnerable Democratic incumbents have been kept off the Ways and Means committee.  In a year of budget shortfalls, Ways and Means will likely have to send some tax-increasing bills to the floor.

Post any thoughts about the budget/spending/taxes debate in this thread.

UPDATE: The press release from Culver’s office is after the jump.

SECOND UPDATE: If you think Iowa’s budget outlook is grim, read this short piece about the situation in California.

THIRD UPDATE: Nancy Sebring, the superintendent of the Des Moines Public Schools, announced plans to cut $3.3 million from the current-year budget (about 1 percent) in light of the state budget cuts. Presumably most if not all school districts in Iowa will need to take similar action. I wouldn’t be surprised if fiscal constraints force more of our small school districts to merge.

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